Wide-Spread Enjoyment, One City at a Time

The age of Facebook seems to teach the value of scale and global connectedness. Concepts of local seem a bit quaint…and business strategies predicated on local connectedness simply seem out of touch. Or are they? When Facebook connects people in Dubai to those in Indonesia and everyone has an iPhone in their pocket, isn’t it clear that the winners have to go big and have scale? Where does quality fit into the equation? There are other models out there: the localvore movement connects you with your community farmer and yields wonderful flavor and perhaps a more sustainable economy. But can that pursuit of the real…the Local…also yield a successful, robust business? Is Local good for our industry?

With many of these questions in mind, Alterra Coffee made a strategic choice to be a strong local/regional brand. Fighting the urge to expand, they chose a narrower path and one of depth. With 10 company-owned retail locations in Milwaukee, three licensed cafes, a wholesale business that extends to a 150-mile radius around the city, Internet shipments crossing the country, and a substantial bakery/commissary, the company is quite profitable and essentially debt free. Alterra focused on connecting with their community and making their brand as accessible as possible.

Founded in 1993 by brothers Lincoln Fowler and Ward Fowler (native Wisconsinites) and friend Paul Miller, Alterra Coffee started with a deep connection to its hometown. The founders’ desire was to build a business that reflected the values of the local area. Craftsmanship, artisanship and quality have always been held in high esteem locally. The partners wanted to marry that culture of craft with two other local traits—a deep appreciation for value and an enduring embrace of humility. In addition, they believed they needed to be available and very hands-on with their customers in order to be successful. They wanted real conversations and a chance to connect with their customers and to support the local community in a meaningful way.

Lincoln describes their path as follows, “Fundamentally, we operate our business as an extension of ourselves. For us, this means carefully building our retail, wholesale and bakery/commissary businesses in an organic way and keeping our business as close to us as possible. We need to be able to reach out and literally touch all of our staff and the vast majority of our wholesale business. This has helped us create a very cogent, understandable brand. Our customers get it. They know exactly who we are and what we stand for.” As the brand built momentum, the founders were tempted to expand more broadly. After all, there were other coffee roasters getting attention for what may perhaps be considered bolder business moves and “key-city” national expansions. But they followed their original plan—staying on strategy and staying local. “We knew that if we tried to transplant this hyper-local brand to another city prematurely, it wouldn’t work. There is a level of authenticity to what we do here. To properly engage a new area, we need to assimilate our new community and become part of the local fabric. Just dropping a café in doesn’t work. That’s part of why we stayed local.”

Depth

Honoring the tradition of the Milwaukee community, which is as hard working and American as you can get, Alterra Coffee has infused a workman-like approach into its business model. Their customers connect to and appreciate a handcrafted, local operation over coffee that came from somewhere else, roasted by someone they don’t know, with no connection to their neighborhood.

For Alterra, that philosophy translates to hard work, discipline and a focus on local. The company attempts to honor that in a very holistic way—by not taking shortcuts with purchasing, spending more for quality, monitoring how that quality is translated through roasting and preparation, connecting with the community in myriad ways and creating hand-crafted environments that reflects those values. This approach isn’t the least-expensive one, so they work hard at running an efficient business and bridging the gap in other ways, so they can remain accessible to their community of customers. Lincoln offers a little more insight into the thought process behind the business philosophy, “Staying local is as much about quality as anything else. Trying to roast coffee in places separated by 1000 miles is hard for anyone in specialty. All of us are small companies by national standards and (in my opinion) most don’t have the infrastructure to ‘go national.’”

For Alterra, ensuring quality demands that their production stays close enough for the owners and employees to touch. Some have suggested that there is not enough market to really grow a significant regional business, certainly not in Southeast Wisconsin, but he hasn’t found that to be the case.

“In fact,” Fowler says, “working in smaller markets gives one opportunities that are not available in much bigger ponds. As good as we feel our retail and coffee are, one or two locations in world-class cities just doesn’t ping the radar of most coffee drinkers. Working in our market to develop many cafes, refine our aesthetic and carefully, strategically locate our retail has given us an unprecedented level of control that we think has served us well.”

Scale

With that level of focus, Lincoln acknowledges, “You might think we’re just a bunch of control freaks—given our need to keep things close—but we like to release as much control as we can because it is the involvement of our roasters, green buyer, food people, retail troops, ops and logistics staff that really make this thing work.”

Inspired by Zingerman’s Deli of Ann Arbor, MI, Alterra has recently begun incorporating principles from The Great Game of Business into their business strategy and operations. That approach is one based on the premise of open-book management that follows the simple, yet powerful belief that, “when employees think, act and feel like owners… everybody wins.” Open-book management has two critical elements: sharing business information (the open-book side) and developing a process that enables everyone to use that information to improve the company (the management side). Following that model, Alterra ownership holds quarterly meetings with employees so they can each develop a high-level understanding of the business. Each section of the company huddles weekly to bring the numbers together and, as a group, find out how they are doing. They’ve developed certain financial metrics that staff uses as management tools, and rewards are based on the longer-term performance of the company. Despite being very hands-on, they realized they needed to let go in order to scale the business.

And Then Mars Corporation Knocked

One key to Alterra’s strategy has been having the discipline to say “no.” After having been solicited numerous times to do deals in other cities, to franchise or to grow in other ways—and responding with a solid no each time—the company finally said yes. Lincoln explains, “We recently said yes to the Mars Corporation, but that yes only came after a series of ‘nos.’ Mars is a multi-billion dollar, family-owned company. They have a drinks division that has been working in single-serve coffee longer than anyone else, well before the advent of specialty coffee. Not surprisingly, the brand they were working under had little connection with specialty coffee and they needed specialty-grade knowledge of sourcing and roasting to ‘up their game’ and be more competitive.”

“Originally, they wanted to buy the company but that did not work for us. Thus began nearly two years of on-off discussions. What finally emerged was a great win for both sides…Mars acquires the brand and the expertise it needs to move its program forward and Alterra stays in Milwaukee, keeps all its operations and will continue to grow its wholesale, retail and bakery/ commissary operations. This was an unusual alignment of needs and resources. The financial side of the transaction allowed Ward, Paul and I to take a considerable amount of risk off the table and we can now undertake more projects to move Alterra forward. It’s odd. It turns out that the best way for us to stay local, was to see the brand go global.”

Moving Forward

Lincoln and the other owners have now shifted their focus toward longevity, creating a self-sufficient management team that will continue to expand the brand. Lincoln explains, “We want to create a robust culture of sophisticated people to ensure the long-term viability of what we have built.” When talking about what else needs to be done, Lincoln speaks of getting bigger by remaining accessible. “We instinctively recoil from anything that implies exclusivity. Great coffee, specialty coffee, has to be accessible.” And on that note, Lincoln shifts from talking about Alterra and begins talking about the industry, cautioning about being too precious….about broadening our market and creating opportunity for Specialty. “Our job is to engage with people and promote the wide-spread enjoyment of great coffee. Coffee should not be exclusive. We like to think of ourselves as socialist-capitalists. We’ll build a great, high-performing business by ensuring everybody has a seat at the coffee bar.” With that, he is utterly optimistic. Of course, there are threats of new competitors, rivalries among existing players, and an increasingly competitive market for great coffees. But there are so many more ways to engage with people over specialty coffee. Connect with your community, welcome them into an appreciation of great coffee and appreciate the work and artisanship that goes into our core product. That’s the way we will grow our industry.

With more than 15 years of marketing experience, Tracy Ging has spent the bulk of her career in the coffee industry, where she has worked on both sides of the supply-chain, developing a deep understanding of the market and the trends driving it. Tracy currently serves as Deputy Executive Director of SCAA.